On the day the Supreme Court struck down the Biden Administration’s plan to forgive up to $20,000 per student loan borrower, the President announced a new effort to secure forgiveness. At the time, he said the new strategy would take longer but was more legally sound.
Close to five months later, we now have a much better understanding of this new plan and how it will look.
Even though the full details haven’t been finalized, it is safe to say that there is a genuine possibility that millions of borrowers will see some form of student loan forgiveness in the next twelve months.
Who Qualifies for Forgiveness Under the New Plan?
Spelling out the details of the new forgiveness proposal is tricky for two different reasons. First, we are in the middle of the rulemaking process. The committee could change things in a later revision. Second, there isn’t just one group that benefits. Instead, a long list of circumstances could lead to relief.
Initially, the Biden administration identified four groups of borrowers that could be targeted for relief. These borrowers included:
- Those with loan balances larger than the amount initially borrowed despite payments made over time;
- Borrowers who went to a school that did not provide them with sufficient value that would allow them to repay their student loans;
- People who still have student loans after 25 years or longer; and
- Borrowers who have not applied for relief under existing student loan forgiveness programs but could nevertheless qualify.
The initial four groups of borrowers targeted for relief clearly need and deserve some help. However, the categories are narrow enough that most borrowers won’t benefit. Nonetheless, there is reason to hope for partial loan forgiveness for borrowers with large balances.
Fortunately for borrowers, the list of people who might benefit has grown significantly. The Biden administration is now looking to help borrowers with identifiable financial hardships who don’t fit within one of the other four categories and are not provided relief through current student loan programs.
After the committee gathered last week, they identified the following groups potentially deserving of relief:
- Borrowers currently in bankruptcy.
- Those with defaulted federal student loans.
- Pell grant recipiants.
- Individuals receiving food stamps, Medicaid, or Affordable Care Act subsidies for health insurance.
- Borrowers with a documented disability, such as those receiving Social Security disability.
- Incarcerated borrowers.
- Borrowers with a demonstrated history of being unable to repay their student loans.
- Senior and elderly borrowers.
I’ve highlighted the second to last group because this category is the most ambiguous. At this point, it appears borrowers who have long periods of hardship forbearances or deferments and/or histories of $0 per month payments are the intended group.
What to Expect from the New Forgiveness Plan
One of the priorities of the committee and the Biden administration is to automate forgiveness. It appears they finally recognize that the existing rules are too complicated, and the people who need the most help may not ever be aware of the programs. Additionally, given the many issues with servicers at the restart, asking servicers to administer a new program or process new applications is probably asking too much.
Thus, whatever relief happens, expect it to arrive automatically.
As for how much help to expect, specific numbers have not been thrown around. Given that the current effort is designed to replace the plan struck down by the Supreme Court, $10,000 to $20,000 per borrower could be a likely amount.
Forgiveness 2.0 vs. the Supreme Court
Borrowers have very good reason to be skeptical of the new attempt at forgiveness becoming a reality. The Supreme Court striking down the last effort was both heartbreaking and budget-busting.
However, this time around, things could be much different.
Instead of forgiveness for all, we are talking about forgiveness for those who could really use the help. Legally speaking, this distinction means that the new forgiveness program should comfortably fall within the Department of Education’s authority to waive or modify debt.
Lawsuits might still get filed, but a successful lawsuit could be a major challenge for opponents of loan forgiveness. Challenges to more narrow debt relief programs have struggled in the courts.
Putting Student Loans on the Ballot in 2024
Those who are more skeptical may see the latest attempt at forgiveness as a political move. There is almost certainly some truth to this point of view.
That said, the political aspect of things has advantages for borrowers. We are less than one year away from the 2024 election. Biden will have to move quickly to get through the rulemaking process before that deadline.
Additionally, opposing student loan relief might not be a popular position for a candidate on the ballot. Some politicians who might otherwise be vocally opposed to relief may keep their mouths shut this time around.
Odds of this Forgiveness Attempt Actually Happening
Whenever there is a new proposal, this is the question I get asked the most by borrowers.
In this case, I think there is a pretty good chance that some form of new forgiveness will happen in 2024. This particular attempt at student loan relief is more narrow, and it is on much more solid legal footing. Additionally, Biden won’t need to get any legislation through Congress to get it approved.
For those unfamiliar with the federal rulemaking process, it was used most recently to create the new SAVE plan.
Strategy for Borrowers Trying to Plan Ahead
If a new round of student loan forgiveness is a possibility, it means borrowers should plan ahead.
For starters, some self-assessment is critical. If you don’t fall into any of the categories targeted for relief, the final product likely won’t apply to you.
However, if you fall into one of the groups listed above, some extra caution for handling your student loans is probably justified. Here are some tips to avoid jeopardizing future forgiveness:
- If you qualify for the SAVE subsidy, the next year is probably a bad time to make extra payments.
- If you are considering refinancing your federal loans, waiting might be the smart approach. Refinancing the debt into a private loan would mean that it can’t be forgiven.
- Focus on other financial goals. To maximize potential forgiveness, make minimum payments on your federal loans and use any extra cash to build up your emergency fund or pay down other debts, such as private student loans.
Stay Up to Date: To help keep up with rule changes and new programs, I’ve created a monthly newsletter to keep borrowers informed. If there are any major announcements on this latest forgiveness attempt, it will be included in the newsletter.
Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.
